A good Real Estate investment if planned properly can not only provide you years of amazing quality living but also, a financial nest egg that could potentially serve you well into your latter years.
One of the burgeoning questions in Singapore that is often asked is, “Can a leasehold provide good investment returns?” or “What is the optimal age of the property I should buy in order to give me the best returns?”
Is a property with 50 years lease remaining a better investment than a condominium with only 25 years left? Even though the answer might not leave you wanting, 50 is better than 25, but the real question is, WHY? And how do I know for sure?
The really short answer to this is: “THERE IS A CURVE!
If you’re in search of a property in Singapore with a good resale value, then don’t fret. We can help with that.
Here are some basics you should learn:
What Is Bala Table (or Bala Price)?
Years ago, when Singapore was a British Colony, a Land Office employee named Bala prepared a mathematical table to calculate the value of leasehold properties. The Singapore Land Authority (SLA) continues to use its formula to determine how years of the lease can impact property rates in the country.
We refer to the calculations as the Bala Table (or we can call it the Bala Price system). Real estate investors and prospective buyers should use this graphical equation to determine the cost of the executive condominium they plan to purchase.
The Bala Curve depicts the dip in leasehold property values as the years go by and the lease renewal date comes closer.
According to the calculations:
- Properties with 99-year leasehold offer 96% of the freehold value
- Condos with a 60-years lease provide 80% freehold value
- Properties with a 30-years leasehold have 60% freehold value
The means your leasehold property will be sold at 60% of the original price when only thirty years remain until its leasehold renewal.
There are two things to observe here. First, the Bala Price system doesn’t reduce property rates in a linear pattern. Instead, you see the depreciation happening faster as the lease comes to its renewal date. Subsequently, it means that Singapore property prices will be high during the initial years of the lease. Once the building crosses the three-decade mark, its value will decrease rapidly.
To Buy or Not to Buy?
There are multiple factors involved in a real estate transaction. You need to weigh them all before making a big investment. If you use the Bala Table as a benchmark of your purchase, you might want to avoid condos older than 30-40 years. The rule applies to newly married couples and first-time real estate investors who will eventually shift to a bigger condo or private property in the future.
That’s because your new (old) property will lose its value when you decide to upgrade your living conditions. The cost of maintaining older homes is also relatively greater than newer condos. If your first home doesn’t have a good return-of-investment rate, you might wind up with less than you paid for when you sell the house.
On the other hand, you don’t have to worry about the Bala Price (and decline in property value) if you plan to stay in the leasehold property for generations. It’s why these properties turn out to be a good investment for retirees and older couples. That’s because they don’t have to worry about the next phase of their real estate journey. They are happy to live in the neighborhoods of their choice.
The Checklist: Other Factors to Consider Before You Buy a Home
As mentioned in the previous section, other determinators can affect property rates. New buyers should consider them before signing a contract.
These are as follows:
Location: Check the URA Master Plan to get a good idea of the residential area, surrounding amenities and prospective development projects. Information like this will allow you to imagine what it will look like in the next five years.
Renovation and Remodelling Costs: You might decide to buy an old executive condominium in Singapore because it’s cheaper. The proximity to your office/school and commercial areas are also practical reasons for purchase. The only setbacks of such homes are the ongoing maintenance issues. You might have to pay a hefty price for your choice if you don’t calculate restoration costs when you survey the home.
Hidden Costs: Calculate property taxes, loans, insurance fees, and additional costs. Then compare them with your budget. You should aim to buy an affordable condo that doesn’t break the bank with its expenses.
These small details make a big difference in your real estate experience. If you overlook them, you might run the risk of facing costly consequences down the road.
The Bottom Line
In conclusion, the age of condominiums in Singapore can influence its rates. We strongly advise first-time buyers to be skeptical of leasehold properties that have crossed a significant number of years. Use the Bala Price Table to assess the cost of an executive condominium before a transaction. Otherwise, the resale value of your purchased property might decline when you decide to sell it or put up the house for rent.
Always consider the pros and cons of your Singapore real estate investment by considering the lease, location, and other variables that affect the price rates. Your careful selection will generate profitable gains when your purchased home hits the market to attract tenants, property investors, or the next owner of the executive condominium.